Clean Energy Winners: American Superconductor

NEW YORK ( TheStreet) -- American Superconductor ( AMSC) shares are rallying on Tuesday on the strength of an earnings report that upped full year and long-term guidance, beat the quarterly Street estimate by 7 cents, and offered limited evidence of the company diversifying away from its reliance on its core Chinese wind market.

American Superconductor shares were up 9% on Tuesday and triple its average daily trading was reached by the mid-afternoon, with more than 2.4 million shares traded.

Revenue for the company's fiscal third quarter was $114.2 million, in line with the Street expectation.

American Superconductor Non-GAAP net income of 40 cents per share was ahead of the Street consensus of 33 cents.

The strong quarterly earnings from American Superconductor are the first results from the company since a Barron's report in December that alleged weakness in the business of American Superconductor revenue backbone Sinovel, the Chinese wind-power company. The report caused a major slide in American Superconductor shares.

American Superconductor alluded to its reliance on the wind market in its latest earnings, but also sought to show that it is diversifying revenue streams. The company noted that it generated record power-grid market revenue in the quarter, of $20 million.

Greg Yurek, AMSC's founder and chief executive officer, said in the earnings report, "Sales in the wind energy market, particularly in Asia, are expected to continue to be the growth engine for our company in the near term. At the same time, sales of our grid-related products, including D-VAR, D-VAR RT, SolarTie, Amperium wire and superconductor cable projects, are expected to become a much bigger contributor to our growth going forward."

American Superconductor was bullish in both the short-term and long-term outlook also.

American Superconductor also raised its full year earnings outlook to a range of $1.33 to $1.38, ahead of the Street consensus, at $1.30.

The company said its strategic growth plan to achieve $1 billion in revenue and operating margin in excess of 20% by 2015 can now be moved up by at least one year, as a result of capital it raised in a November offering, and growth in the wind and power-grid markets.

American Superconductor's backlog as of December 31, 2010 was $883 million, down from $956 million as of September 30, 2010.

Carter Driscoll, analyst at Capstone Investments, said it's certainly a positive to raise guidance given the Street's negativity the past couple of months, yet the guidance hike for the full year was a reflection of the beat this quarter. Additionally, tax treatment helped earnings while the recent share dilution from a secondary offering hurt.

The Capstone analyst said that the grid interconnection business was a positive in the American Superconductor results, and helps diversification, but it is a business driven by the Chinese wind market, at least indirectly. At year-end 2010 in China, there were more than 41 gigawatts of wind power installed, but only 25GW grid-connected.

An earnings beat is an earnings beat, says Wunderlich Securities analyst Theodore O'Neill. Even putting to the side the foreign exchange gains and tax adjustments that the "nitpickers" will point to reasons for the financial engineering embedded in the earnings outperformance -- as well as higher research and development expenses rising notably in the quarter -- AMSC still beat consensus by a penny. The analyst thinks the long-term target of $1 billion in revenue being moved forward by a year may be conservative, too, and AMSC can hit the target in 2013.

Accounts receivable doubled since the March-end quarter, to $121 million for American Superconductor, which was cited as a potential sore spot in a roundly positive earnings from AMSC. Yet Wunderlich's O'Neill contends that the company's Tier 1 customer base makes the AR level less of a concern than if it were selling to Tier 3 customers. The analyst also cites more recent data showing that accounts receivable has come down $30 million since the end of the quarter, and day sales outstanding (DSOs) remains well below peak levels.

Before the Barron's report, American Superconductor shares were trading above $38. After the 9% rise on Tuesday, American Superconductor shares were trading near the $30 mark.

In other news related to the Chinese wind power market on Tuesday, China Ming Yang Wind Power ( MY) said it had won 1.1 gigawatts of new contracts in China for wind power projects. The Chinese wind company's shares were up more than 4% on Tuesday morning, though shares remain below $10, and well below the company IPO price from October 2010, when Ming Yang Wind Power was trading above $14 shortly after its offering.